John Lothian Newsletter: CFTC Opens Probe Into Fees Charged by Managed Futures Funds; Investors shun Wall Street broker ConvergEx; Regulators Soften Rules For Securitizations

Dec 20, 2013

First Read

CFTC Opens Probe Into Fees Charged by Managed Futures Funds
David Evans – Bloomberg
The Commodity Futures Trading Commission is investigating the high fees charged to investors in the $337 billion managed futures market. CFTC Commissioner Bart Chilton says the agency initiated the inquiry after Bloomberg Markets magazine reported in its November issue that 89 percent of the $11.51 billion profits of 63 managed futures funds was consumed by commissions, fees and expenses.

***JM: It should probably alarm me, but it mostly makes me chuckle that the CFTC of all people apparently just realized that CTAs charge fees. Isn’t that something they maybe should have known about BEFORE some news guy looking for attention wrote a hacked up article about it?

++++ interview: Competition causing trading glitches
Cinnober – Interview by Philip Stafford, Editor of FT Trading Room
The reliability of trading systems was once considered akin to those used by airlines. Now glitches and downtime are common. Veronica Augustsson, CEO of Swedish group Cinnober, says this is the consequence of competition on cost without quality stipulations.

***JM: Software quality is not a new issue. Neither is the issue of “why bother to improve when we get paid either way?”


S.E.C. Tension as It Examined Mortgage Cases
Wall Street’s top regulator, sifting through the wreckage of the mortgage crisis, was weighing enforcement actions last year against several large financial companies. But then the regulator, the Securities and Exchange Commission, decided in some prominent cases to quietly back down.

***JM: 2008’s cooked, fully processed and the leftovers are past due in the back of the fridge. I’d suggest 2014 would be a better year to analyze for regulatory backbone.


Tel Aviv Stock Exchange And Eurex Sign Derivatives Trading Cooperation Agreement – Eurex To Launch Index Futures Contracts Based On TASE’s Main Index TA-25
The Tel Aviv Stock Exchange (TASE), and Eurex Exchange, the international derivatives marketplace and part of Deutsche Börse Group, have signed a cooperation agreement. Under the agreement, Eurex Exchange will list and clear index futures based on the TA-25 index, Israel’s blue chip index and one of the most heavily traded regional equity indexes. Eurex’s TA-25 index futures will be denominated in US dollars.


ITA Spotlight: Nigel Young (Spot Trading)
Illinois Technology Association
What brought you to Chicago?
I am originally from the North East of England and I lived and worked in the financial district of London for several years. A business opportunity presented itself in Chicago and my American wife and I transferred here from London in 2002.


Investors’ Story Left Out of Wall St. ‘Wolf’ Movie
The Wolf of Wall Street is about to have his day. The Martin Scorsese film about the Wolf — Jordan Belfort in real life, played by Leonardo DiCaprio — tells how Mr. Belfort swindled thousands of investors out of more than $100 million as head of a penny-stock boiler room in the 1990s.

***JM: I am really hoping they’ll make a movie about Preet Bharara. Clint Eastwood’s a little too old to play him, though.


Carlyle Resumes a Holiday Tradition: Funny Videos
Some financial firms mail out elaborate holiday cards. Others email their holiday greetings. But the Carlyle Group is going back to something slightly more elaborate for its new year greetings: a comedic take on the childhoods of its top executives.

***JM: Well, there aren’t any cats in this video, so it’s not THAT funny. But it’s cute.


Economists: Less Scrooge-Like Than You Thought
A few years ago Joel Waldfogel wrote “Scroogeonomics: Why You Shouldn’t Buy Presents for the Holidays,” an economic manifesto about the wastefulness of gift-giving. The Initiative on Global Markets at the University of Chicago’s Booth School of Business recently queried its panel of 46 economic experts on the subject, and the responses were surprisingly less Grinch-like.

***JM: Also, being nice to people wastes time, so cut it out.


Propllr to Send Media Pitches by Drone in 2014
Propllr, a public relations and content marketing firm serving start-ups and growth companies, today announced that it will deliver media pitches by drone beginning January 6, 2014. The move, the culmination of 10 minutes of random thoughts and a desire to have 60 Minutes produce a puff piece on its founder, adds aerial delivery to the range of methods by which reporters can now be annoyingly and persistently contacted, including phone, email, Twitter, LinkedIn, Snapchat, Facebook, “coincidental” run-ins and Tinder.



MarketsWiki Page of the Day
Virtu Financial LLC

MarketsWiki Recent Updates


Rick Norwood; Felix B. Davidson; Raymond J. Di Sanza; Craig C. Messinger; Vincent Viola; Douglas Cifu

Companies, Organizations and Groups

Instinet; OCC; Virtu Financial LLC


45,988,130 pages viewed, 7,727 articles, 170,024 edits
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Lead Stories

Investors shun Wall Street broker ConvergEx
Arash Massoudi and Kara Scannell in New York –
Big investors suspended trading ties with ConvergEx on Thursday in the latest blow for the Wall Street broker that this week agreed to pay a $150m fine and a subsidiary pleaded guilty to repeatedly “fleecing” clients through hidden fees.

Regulators Soften Rules For Securitizations
Global banking regulators backed down partially from plans to introduce tough new regulations on certain types of bonds, in an apparent attempt to encourage banks to make it easier to extend new loans to the real economy.

Banks Said to Snitch on FX Rivals in Race to Avoid Fines
Gaspard Sebag and Aoife White – Bloomberg
Banks are racing to betray their competitors to avoid possible European Union fines for rigging foreign-exchange markets, according to a person with knowledge of the EU’s preliminary investigation.

FX manipulation probe said to find evidence of collusion – WSJ
The global probe into alleged manipulation of currency rates has uncovered evidence of collusion between traders to try to maximise profits and minimise losses, the Wall Street Journal reported on Friday.

Danes show euro zone that speed is king in bank wind-ups
Speed is king when handling a failing bank; Denmark used this strategy during the global financial crisis to close a dozen lenders without any costly state bailouts, and yet the euro zone may not have learnt from the experience.

We still need to learn the real lessons of the crisis
Martin Wolf –
A passer-by sees a man looking under a lamppost and asks what he is trying to find. “My keys,” he replies. They look for a while but find nothing. The passer-by asks whether the first man is sure he lost his keys here. “Oh, no,” replies the man. “But this is where the light falls.”

Ocwen Financial Agrees to $2.2 Billion Settlement
A $2.2 billion agreement is settling accusations against a large but little known player in the mortgage industry that escaped last year’s sweeping mortgage settlement.

Traders Seek an Edge With High-Tech Snooping
Michael Rothfeld and Scott Patterson –
A helicopter lifted off recently from an airfield in this remote oil town, scudded low across the flat industrial landscape and trained a heat-sensitive camera at the huge storage tanks below. Its mission: Gather intelligence for Wall Street.


U.S. regulators say banks have time to sell securities under Volcker
The U.S. Federal Reserve said on Thursday banks do not need to sell certain securities immediately under the Volcker rule, but instead have until July 2015 to decide if the investments comply with the new rules.

US regulators seek to ease Volcker fears
Gina Chon in Washington –
US regulators have sought to ease the fears of small lenders that they would have to take billions of dollars of losses because of the Volcker rule. As many as 300 banks could be affected because of their holdings in a complex set of securities, which they believe they are required to divest as part of the rule and record a loss.

U.S. Agencies Issue FAQ Document Regarding Collateralized Debt Obligations Backed By Trust Preferred Securities Under Final Rules Implementing The “Volcker Rule”
Three federal financial institution regulatory agencies today issued a FAQ (Frequently Asked Questions) document to provide clarification and guidance to banking entities regarding investments in “Covered Funds” and whether collateralized debt obligations backed by trust preferred securities (TruPS CDOs) could be determined to be Covered Funds under the final rules to implement section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

U.S. Federal Financial Regulators Extend Comment Period For Proposed Policy Statement On Assessing Diversity Policies And Practices Of Regulated Entities

CFTC Staff Issues an Extension of a Time-Limited No-Action Relief to Japan Securities Clearing Corporation and Its Qualifying Participants and Affiliates
The U.S. Commodity Futures Trading Commission’s (CFTC or Commission) Division of Clearing and Risk (Division) today issued an extension of a time-limited no-action relief to Japan Securities Clearing Corporation (JSCC) and its qualifying participants and affiliates.

[NFA] Compliance Rule 2-49: Swap Dealers and Major Swap Participant Regulations
An explanation of the adoption of the Compliance Rule can be found in the September 3, 2013 rule submission letter

NFA Notice to Members I-13-42: Effective Date of NFA Compliance Rule 2-49: Swap Dealers and Major Swap Participants Regulations

Notice to Members I-13-43: FinCEN Issues an Advisory on the FATF-Identified Jurisdictions with AML/CFT Deficiencies

ESMA Clarifies Reporting Of On-Exchange Derivatives Under EMIR
ESMA clarifies reporting of on-exchange derivatives under EMIR The European Securities and Markets Authority (ESMA) has issued today updated Question & Answers (Q&As) on the implementation of the European Markets Infrastructure Regulation (EMIR).

Canadian Securities Regulators Seek Comment on Derivatives Rule Relating to Mandatory Central Counterparty Clearing

Canadian securities regulators mandate OSBI’s dispute resolution service for registered dealers and advisers

Exchanges & Trading Facilities

Eris Exchange Posts 272% Growth
Over the course of 2013, Eris has welcomed new dealers, participants, clearing firms and channel partners resulting in increased activity on the exchange

CBOE Statement on Today’s Court Ruling in Favor of S&P Dow Jones Indices Against ISE

Moscow Exchange: Removal Of 50 Mln USD Cap On Initial Margin On Derivatives Market

NZX Employee Share Plan – Team And Results

Bermuda Stock Exchange Will Be Closed For The Festive Holidays

UBS MTF Trading Holidays

Hedge Funds & Managed Futures

Hedge Fund Secrets Lie in Short Term Over Luck: Cutting Research
Simon Kennedy – Bloomberg
The best hedge fund managers tend to find profits in short-term, contrarian bets. That’s the finding of a study published this year by Russell Jame of the University of Kentucky and set to be presented next month at the American Economic Association’s annual meeting in Philadelphia.

K.K.R. Partner to Lead Private Equity Lobbying Group
At Kohlberg Kravis Roberts, Kenneth B. Mehlman has helped guide the investment giant into becoming more open as the firm transformed from a secretive partnership to a publicly traded company. Now he is assuming a top role at the private equity industry’s lobbying group.

Investors should abandon long-term commodity bets
Mark Haefele and Chris Wright | FT Alphaville
A key rule in financial markets is that rational investors should not take unnecessary risks. It is strange, then, that some savvy investors still allocate to commodities over a long-term, five-year-plus horizon. The assumption is that commodities diversify portfolios, hedge against inflation, and, in the case of gold, offer a safe store of value. But our research suggests these justifications for long-term bets on commodities are illusory.

Irrationality, trend-following, and cats
The Economist
ARE investors rational? One of the most robust findings in the empirical finance literature is that people who buy assets when discount rates are high do much better over time than those who buy when discount rates are low. In other words, when investors in the aggregate “expect” high returns, they get them. This suggests that the markets behave pretty sensibly. But according to a provocative new paper by Robin Greenwood and Andrei Shleifer, these implied “expectations” are not connected to what real people actually think or do. In fact, actual people basically do the opposite of what rational expectations models suggest they should do.

Canada bubble fears stoked by launch of short-focused Spartan fund
Camilla Hall –
Investors in Canada are to get the chance to bet against their own real estate market as one of the first short-focused funds is set to launch in the country, where concerns have grown that there is a housing bubble ready to burst.

Insurers eye opportunities in commodity trade finance
Louie Woodall –
European insurers are investing in commodity trade finance (CTF) as they look for new ways to increase yield and diversify their short-dated investment portfolios.

Banks & Brokers

Gripes over JPMorgan’s commodities sale
Gregory Meyer and Tom Braithwaite in New York –
Bidders for JPMorgan Chase’s physical commodities business have complained that the bank is refusing to release enough information for them to value the assets. The sale has presented a challenge for bankers running the process as they are negotiating with some of their fiercest trading rivals.

Credit Suisse Bringing Back Pipeline Banker
Ryan Dezember – MoneyBeat – WSJ
Credit Suisse Group AG is bolstering its oil and gas team, hiring a prominent pipeline and master-limited-partnership banker, according to an internal memo. Brian McCabe, most recently Morgan Stanley’s co-head of North American Energy, plans to join Credit Suisse in March, wrote Osmar Abib, global head of Credit Suisse’s oil and gas investment banking group.

Jefferies Continues with Cash Bonuses
Giles Turner and Matt Turner – MoneyBeat – WSJ
Jefferies could be about to cause a fresh stir on Wall Street. The boutique investment bank is going to pay bonuses in cash again this year, according to two people familiar with the situation.

Wells Fargo sweetens brokers’ deferred pay, retirement incentives
Wells Fargo Advisors outlined its 2014 compensation plan for retail brokers on Thursday, dramatically increasing the deferred compensation brokers can receive for meeting revenue goals, making more brokers eligible for expense accounts and tinkering with their monthly revenue targets.

City feels sentiment shift on junior banker hours
Giles Turner – Financial News
Investment banks are cutting loose – this time on working conditions, rather than headcount.

Clearing & Settlement

DTCC Provides The Industry With A Blueprint To Drive Down MMI Settlement Processing Risks
The Depository Trust & Clearing Corporation (DTCC) today published a detailed plan for proposed enhancements to its settlement processing for money market instruments (MMIs) to improve intraday settlement finality and further reduce credit and liquidity risk in the MMI market.


Bloomberg Appoints Paul Wood
Bloomberg LP named Paul Wood as its chief risk and compliance officer, a newly created position, following increased scrutiny on how the company and traders use its terminals.

Kaplan Swaps Telx for Equinix
Max Bowie – WatersTechnology
Shawn Kaplan recently joined datacenter and hosting provider Equinix as sales director for the vendor’s major accounts team covering financial services, a newly-created role leading a sales team focused on building strategic relationships with Equinix’s largest global clients.

Finextra: Citicom partners with Tango for mobile voice recording
Citicom Solutions, a total communications business focused on financial services organizations globally, today announced a partnership with Tango Networks, a leading technology provider that enables enterprises to embrace the power of mobile collaboration with any mobile phone.


SEC Charges Microsoft Senior Manager and Friend With Insider Trading in Advance of Company News
The Securities and Exchange Commission today charged a senior portfolio manager at Microsoft Corporation and his friend and business partner with insider trading ahead of company announcements.

Federal Financial Regulators Extend Comment Period for Proposed Policy Statement on Assessing Diversity Policies and Practices of Regulated Entities
Six federal financial regulatory agencies announced today that they are extending the comment period for their proposed policy statement for assessing diversity policies and practices of the institutions they regulate to allow the public more time to analyze the issues and prepare their comments.

Federal Court in New York Orders Defendant David M. Nunn to Pay a $600,000 Civil Monetary Penalty for Engaging in an Illegal Coffee Futures Trading Scheme and Making False Statements to ICE Futures U.S.
The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge Lewis A. Kaplan of the U.S. District Court for the Southern District of New York entered a consent Order against David M. Nunn for entering into fictitious sales, engaging in illegal noncompetitive and fictitious trades in coffee futures contracts over a two-year period, and making false statements to representatives of ICE Futures U.S., Inc.

FINRA Fines Deutsche Bank Securities, Inc. $6.5 Million for Serious Financial and Operational Deficiencies
The Financial Industry Regulatory Authority (FINRA) today announced that it has fined Deutsche Bank Securities, Inc. (DBSI) $6.5 million and censured the firm for serious financial and operational deficiencies primarily related to its enhanced lending program.

Tiger Asia Hedge Fund Ordered to Repay $5.8 Million Over Illegal Trading
A court on Friday ordered Tiger Asia Management, the regional arm of the New York-based hedge fund Tiger Management, to repay nearly $6 million to more than 1,800 investors after the fund admitted to insider trading and share price manipulation.

[FCA] Statement regarding Swift Trade Court of Appeal Judgment
On 19 December, the Court of Appeal handed down its judgment on the appeal by the Canadian company formerly known as Swift Trade Inc and its former director Peter Beck, who had appealed against a decision of the Upper Tribunal (Tax and Chancery Chamber) issued in January 2013 finding that Swift Trade had engaged in deliberate market abuse.

Insider Jury-Room Demonstration Persuaded Holdouts in Ex-Trader’s Trial
After more than nine hours of deliberating in a cramped room so warm that they had to ask for ice, the nine women and three men on a federal jury had reached an impasse. Two jurors still held doubts about whether Michael S. Steinberg, the highest-ranking SAC Capital Advisors employee to be accused of insider trading, explicitly knew that his analyst had given him illegal tips.

Environmental & Energy

Eight nations get EU clearance to hand out free carbon permits
Eight EU nations have been given approval to issue free 2013 carbon permits, a move that could enable almost a quarter of this year’s long-awaited allocations to be handed out by the end of the week, the European Commission said late Wednesday.

How Asia Leads on Carbon Emissions Trading
The Moscow Times
It is not well known that Kazakhstan, a nation whose landmass exceeds that of Western Europe and boasts the largest economy in Central Asia, introduced a carbon trading scheme earlier this year. It is the first Asian nation to take on an economy-wide cap, and the trading system has been designed to help it achieve its goal of reducing greenhouse gas emissions to 7 percent below 1990 levels by 2020.

The world’s first science-based ranking of corporate carbon emissions
Press Release
If a company claims that it plans to reduce its carbon footprint 15% by 2020, is that good? Better yet, is it enough?
The purpose of this study was to analyze greenhouse gas (GHG) emissions of 100 companies against science-based targets that seek to limit climate change to 2o Celsius (3.6o Fahrenheit). As climate modeling has provided a “best guess” as to what it will take to reverse climate change and stabilize greenhouse gas emissions to safe levels, this study assesses how well companies are performing in the context of environmental thresholds.


New securities watchdog targets corporate fraud in Hong Kong
Hong Kong’s securities regulator has set up a task force to detect fraud by listed companies, extending its increasingly muscular approach into an area traditionally overseen by the city’s stock exchange.

U.S. says China agrees to more market access
U.S. Trade Representative Michael Froman said on Friday that China had agreed to remove regulatory hurdles to market access and had also set an action plan to enhance to protection of trade secrets.

Chinese Interest Rates in Money Markets Jump on Friday
Interest rates in China’s money markets jumped Friday to levels last seen during a crippling cash crunch this summer, as banks continue to struggle to raise funds in the interbank market.

Macro Horizons: Keep Your Eye on the People’s Bank of China
Michael J. Casey, Alen Mattich and Michael Arnold – MoneyBeat – WSJ
The Federal Reserve is not the only central bank withdrawing monetary stimulus–it seems the People’s Bank of China is also pulling back on the amount of money it is pumping into the financial system.

Markit Connects To Hong Kong Monetary Authority’s Trade Repository

HKEx: Twenty New Country Guides Published For Acceptable Jurisdictions Of Incorporation

HKEx: Stock Exchange Participants’ Market Share Report

Frontier Markets

Police action spurs NSEL defaulters
Business Standard
Fearing action from the economic offences wing (EOW) of the city police, borrowers of the National Spot Exchange (NSEL) have started queuing to sign settlement agreements with the beleaguered spot commodity trading platform, struggling to resolve a Rs 5,500-crore payment crisis.

Malawi Stock Exchange Weekly Trading Report – Week Ending 20th December, 2013

MCX Weekly Market Report – December 13, 2013 To December 19, 2013

John Lothian Newsletter

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